tv Taking Stock With Pimm Fox Bloomberg September 18, 2014 5:00pm-6:01pm EDT
♪ >> this is "taking stock" for thursday, september 18. big technology stories for you. oracle's larry ellison steps down as chief executive officer of the company he founded. mark hurd and safra catz, copresidents of oracle, named chief executives to replace allison. secondly, we await the pricing of alibaba's initial public offering any moment this afternoon. start of anthe
action-packed technology-fest. emily chang journey from new francisco,rom san cory johnson. agilehe guest from software, purchased by oracle in 2007. larry ellison and the resignation -- >> the company he cofounded in 1977. he has seen it through so many ups and downs. a larger-than-life personality in the technology industry. very controversial tactics, singling out the enemy and taking them down or buying them, replacing himself with two two lieutenants. mark hurd will run marketing and sales, and safra catz will run legal. she has been there since 1999. mark hurd has been there for four years.
lots of questions about how well they will work together. questions about whether oracle needs new blood. while they dominate the industry, they have not been as innovative as people hoped. >> it seems larry ellison, while giving up the ceo title, is not going far, is he? >> he is remaining chairman of the company, and larry's still going to be there. at age 70, maybe that is why he is leaving. he is bombastic in person, completelyand a self-made guy. an adopted guy out of chicago. >> hang on. we are going to bring in brian stowell. his company, larry ellison bought it in 2007. give us your thoughts.
all right. i guess we will have to leave it there until gwe fix it. cory, you mentioned he will be the chairman of oracle and still own 25% of the company, and this has a market cap of $185 billion. >> larry is as rich as anyone has ever been, depending on how you count the money. that effectively remaining chariman, he will always be the founder and his personality goes to the company in so many important ways. add to that, this company won't do things larry ellison doesn't like because it can't. exert alison will still lot of control. >> i have to say, we know br
yan is now wired. you sold your company to larry ellison in 2007., what is it like to do deals with larry and to bve part of his network? always hasion, larry been very hands-on. people might be surprised how much. at the same time, mark and safra has had four years to work together. safra has been there a long time, making the trains run on time. it will be interesting to see who really drives the strategic vision and where the company goes. you made the point, a long time ago oracle chose to buy innovation instead of innovating themselves. there are lots of opportunities, and they have the warchest to do so. >> what is larry ellison like to do business with?
walk us through your interactions with him. >> he very much knows what he wants. he's very direct and to the point, and he gets what he wants. ee believes in, adopts th japanese cultural way of doing things. samurai is not a bad way of thinking about him. >> i think it works. guy whoid, this is a has been on a massive acquisition spree practically his entire career. they just bought micros systems in june for $5 billion. sun microsystems a few years ago. we will speak to the cofounder on "bloomberg west."a long, bloody takeover , but he made it happen. >> cory johnson, larry ellison is a big proponent of the internet as facilitating appliances in the home and
connected devices, along with having small bits of opsware on -- software on mobile things connecting to the cloud. data moreld like big than the guy who sells the most databases? oracle really benefited from the success of computing. we talk about moore's law, how ctorcost of a semicondu drops as it doubles, the marketing principle that guided intel and led to innovation. but a lot of that is not just doing calculations, is calculated data, and that is stored on oracle databases more than any other format. this has grown not just with the success of the sales force, the famous sales force and the more,y to make them sell
by the growth of computing, the ability to gather information, and oracle is where the information goes to be stored and used. >> aren't their competitors people used to work with larry ellison, like marc benioff, who created salesforce.com. before that, a former -- orce,ioff and salesf another company, i was speaking with peter thiel, who said he would bet on salesforce anytime over oracle, and that betting on oracle is a bet against innovation. they are much smaller businesses, but a lot of people would argue their product are better. >> we got a report from oracle about quarterly performance as part of the news stream about the exit of larry ellison as ceo. they missed average analyst
estimates by two cents, and sal es were lower than estimated. >> the announcement was slipped in with this. good diligence of them to tell us how things are going. 3% year-over-year sales growth. the earnings per share number, they can fudge that a lot of ways, not least with a sure bet i can -- share buyback they had been engaged in. they spend billions of acquisitions and only 3% sales growth, that is a concerning number. that shows the challenge safra catz and mark hurd are facing with this. things thehey do old way, selling giant installations of software and hardware combined together for multiyear contracts. that's the old way. jars he talking that tecnho
o jargontechn stuff? >> it is the legacy model of on premise software. salesforce offers software as a service. companies don't necessarily want to buy software if they can just rent it from the cloud. >> i know we are awaiting details about alibaba's initial public offering. emily chang, from "bloomberg west," and cory johnson, "bloomberg west" editor at large. coming up at six clark p.m., will -- 6:00 p.m., we will hear from the former chief executive stems, purchased by oracle in 2010. i wonder if anyone knows what sun stands for? more on alibaba and oracle next. ♪
>> we continue to follow the story. alibaba's initial public offering expected to price between $66 and $68 a share, making it the largest initial public offering of all time. they could raise nearly $22 billion. joining me for more insight on alibaba, bloomberg west and cory --nson, and internet analyst we just spoke a couple minutes ago on bloomberg radio. i wonder if you could tell me again the amount of money people are talking about. it sounds astronomical. market valuation of the whole company, $165 billion. >> that's correct. at the $67 price. proceedsthe amount of
from sales, these are the headline numbers, but we look at valuations. we look versus amaozn -- amazon or ebay. it would be at about 26 times estimated ebitda. >> compared to amazon? >> amazon's 24 times, ebay at 1 1 times. >> a slight premium to those names. i was looking at the value of oracle before, that is 185 billion. alibaba, $155 billion out of the gate. >> some people say if you go as high as $200 billion on the first day. it is so deeply embedded into chinese consumers' lives.
china goesmmerce in through alibaba, more than amazon and ebay combined. >> $150 billion worth of transactions. alibaba,n it is called i know you know the story. tell us what happened. jack ma was living in san francisco. >> he had come to the united states, visiting, and it was very early days of the internet. the internet was so rough. he googled "beer" and saw nothing about chinese beer. we had some pretty good beer in china. why isn't our beer on the internet/ he decided to start this company, alibaba. woodcutter who a discovers how to open the den of theives. >> looking around for a name,
and he tried it out on people. ali baba and the 40 thieves. that sounds good, because it means he is savvy in business. >> he is, indeed. this is a company he started with evan teen cofounders -- 17 cofounders in his apartment building in 1999. there is home video of him, they thought they were making history. they shot speeches he made in their living room, that alibaba would someday take over the world. world's it is the largest e-commerce company because of all the business that filters through alibaba. >> i know you were looking on youtr mobile, and it had to do with sap. cory johnson, you have been getting details about sap. tell us about acquisitions. concur, al buy
seattle-based company for travel management software, known for the tripit software they bought. they have travel management software, with oracle looking across at the relative success of companies like salesforce. concur, and other small software service companies focusing on travel, acquired for $8.3 billion by sap. sap, a longtime competitor to oracle, trying to move more into the cloud, more into software service,. even though businesses are smaller, they are growing, so acquiring concur. >> what i love is a small acquisition is now $8.3 billion. i have a feeling you will be putting in a call to bill mcdermott of sap.
>> we like bill mcdermott. softwarenother -- ceo's are a great gift to journalists and investors. they might not have that connection, but they are great, colorful characters. bill mcdermott, one of many. >> if you combine this with the alibaba initial public offering and the larry ellison change, the ceo level, doesn't it tell you that this is where the drama of business is being played out right now in 2014? is in ank technology place where it has never been before, internet technology, computing technology, because it is affecting every business in the world. every business in the world has to wrestle with what to do about mobile, about the existence of, the power of computing. you can be a firefighter, you could be in oil and gas, but the
way technology is changing the world has such a great impact on your business. you have to make decisions about that. we see this, whether it is oracle in the database field, or dealing with the travel industry or what have you, these things matter to every kind of company. >> or you could be cory johnson. you will stay with me. cory johnson, and more with emily chang of "bloomberg west." this is "taking stock on bloomberg. ♪ >> this is "taking stock" on
new co-chief executive safra catz, speaking now. let's listen in. can move anyers existing applications and databases to the oracle platform with the push of a button. with the push of a button, your data is automatically compress. and encrypted. a secure and efficient transfer to the cloud. with the push of a button, your existing application automatically becomes -- is moved to the oracle cloud. no reprogramming is required. every single oracle feature, even our latest heist the processing -- high-speed processing, is included in the oracle cloud database servers. hundreds of thousands of customers have been waiting for exactly this. software largest
business, and database will be our largest cloud service business. mark? >> before we take questions, i thought i would give you seven or eight facts about our business in the quarter. bookings grew 54%. digits. triple 32%.ue grew we have 500 new cloud customers in the quarter. based on what i heard, they got something like 25. we got 60 fusion new customers in the quarter. 290 new cx we had customers, 90 fusion sfa, and almost 200 marketing new customers. we added 90 new customers in
fusion erp, and ia like number n the epm cloud. all i'm talking about is erp cloud and epm clout. fusion had triple digit bookings growth, triple digit revenue growth. we added 200 net new fusion customers. while the transition to the cloud is in the early stages, we are already at a run rate of nearly $2 billion. on hardware, we declined in grew this quarter and engineered systems double digits. our competitors are declining in double digits. 10,000ted -- shipped engineered systems in q1. lifetime bookings now exceed $3
billion. support margins are reaching 70%, a testimony to the change in the overall hardware mix. with that -- >> from the conference call at oracle to julie hyman in the newsroom with more details about alibaba. >> we knew the range of the ipo $66 to $68 a share. the "wall street journal" now reports it will be 60 billion -- $68 a share, valuing the company at $168 billion, one of the largest by market value in the united states because of this. demand has been brisk, and at least six big institutional investors are poised to take substantial stakes, including fidelity and blackrock and t. rowe price.
>> this is "taking stock" on bloomberg. i'm pimm fox. alibaba, parsing its initial public offering. this get more details from julie hyman in the newsroom. >> we are looking at alibaba, pricing the offering at the high end of the range, $60 a share. $68 a share. that means ali baba is raising $21.8 billion in the ipo, which
makes it the largest u.s. initial public offering ever, and means its market value, before shares even trade, would be $168 billion. this would, if it were in the s&p 500, be about the ninth largest in that index, between intel and citigroup, and we don't know what it could do on the first day of trading. $21.8 billion raised in the ipo, valuing alibaba at $168 billion. >> let's bring in paul kedrosky from san diego. paul, give us your thoughts on the pricing. >> i'm of two minds. it's the number we have heard about for some time, $68 seemed
to be the number everyone was fixating on. it has cultural significance in china. at to stereotype, it is homophone persimmon to do with prosperity and wealth. this is a number they stuck on. tomorrow,arts trading assuming they are able to make it start trading, i think the stock will do very well. i hate to say it, but i think this is underpriced. >> why do you believe that to be so? >> the demand, in the two shall community during the roadshow -- institutional community during the roadshow was tsunami-like, sold out within three days. around and marketing the thing, it sold very quickly. the control is tight with
respect to dissipation of stock. if you want alibaba stock, you have to come in as a retail investor tomorrow, and the appetite is immense. no one is able to get allocation, so you will see an awful lot of aftermarket business after it comes out, so 10% more would not surprise me in the least. >> who will be selling stock tomorrow in addition to the company? >> yahoo! will be selling stock. as importantly, they will be keeping stock. they will not sell their entire stake. if there is appreciation, they will benefit of that. they're playing that smartly, because yahoo! as a company has not done much to excite growth in revenues, let alone in cash flow. yahoo! an important seller, as well as investors in alibaba.
the more successful bankers have been at putting this out there, the fewer retail investors get it. the seasonal -- in willtional buyers hold on. if it is underpriced, even more likely there will be less immediate sales of people allocated shares. >> paul, i wonder if you could come in on the uses of these funds. alibaba doesn't need the money. >> no. this is essentially creating a currency it can use to do whatever it wants. alibaba has become number two, that, four, five, venture capitalistss call.
the main hope is to be a more aggressive acquirer of u.s. companies in the commerce space, mobvilbile as well. that capital helps them close deals quickly. we should expect to see them become an aggressive acquirer of technologies around the world. >> could we make a connection between the brokerage firms helping alibaba go public in helping jack ma realize this point in his career -- are they going to be the banks that could be advising alibaba on future mergers and acquisitions? >> if they are not, they are going to be very disappointed. absolutely. there is a tacit quid pro quo. we will manage your employees' portfolios and help you do m&a. that is how you profit post-ippo. --post-ipo.
>> what about alibaba coming to the rest of the world? >> that is one of the big questions. in the ipo filing the company said they had global ambitions and intend to take business all over and use proceeds from the ipo to help do so. but and just as intrigued by how they are using investments to bring some global technologies to china. alibaba is a company the chinese government has decided can do things other companies will not be allowed to do. one wonders what an alibaba investment means for two guys in a garage in silicon valley with a great messaging company or something. an alibaba investment might suddenly mean you are allowed to do business in china and have a big market all to yourself. >> iwant -- i want to bring in bloomberg's ipo reporter.
leslie has been following ali baba since it was filed. companiesitutional wishing to purchase at least $1 billion of stock. leslie, what update can you give us about alibaba? >> the institutions are something that helps them price $68 a0 a share, at -- share. it was believed by most people $68 would be the final price, but you never know until the market closes. my sources say the comparables were tencent, baidu -- this price still puts them at a discount to their chinese peers, price to projected earnings. an interesting price in terms of the lucky number 8. we talked about that in the past, 8 is lucky in china.
we will see how it trades tomorrow. >> is there any specific piece of news or information we are awaiting from the company or the bankers tonight? >> at this point, no. 320.1 millionng shares for $68 each, within the range. that's what we're looking at. we could see a different breakdown in who is selling shares specifically, but it looks to be pretty much what we saw in previous final -- filings. >> paul kedrosky, what will you be looking for at the open tomorrow morning? >> the only strange thing, that did happen in the case of the ipo was ipop wa, -- stock suddenly appearing in the retail channel. i think supply will remain very tight, and nothing will show up
other than what we have seen already. >> cory johnson, your thoughts? >> it's hard to say. there has been so much coming out of this deal. if you are an institutional holder who got a nice allocation, if you got a lot of stock and see a big gain, as paul predicted, it is reasona clock isevena stopped right twice a day. if it gets a pop, will institutional investors decide to take money off the table and sell some shares? >> stay with us. don't forget two special programs tonight on bloomberg. a documentary entitled "the alibaba story" at 9:00 p.m. eastern, and a 10:30 p.m. eastern, stay tuned for a half-hour "bloomberg west" special on alibaba, all right here on bloomberg. this is " taking stock."
>> this is "taking stock" on bloomberg. continuing coverage of ali baba's initial public offering, share, raising $21.8 billion, putting a total valuation on the chinese e-commerce giant of $168 billion. here to tell us more, mia saini. how long have you been covering ali baba and jack markell? >> over -- jack ma? >> over four years now. >> you have a nickname. >> everyone has been calling me "lady baba" -- dressed in the colors. i have been covering it since i moved from hong kong.
an investor told to me there were three things they would use to describe what is happening with this price. number one, a discount. number two, ins -- expected, and number three, conservative. they are looking to price this to get those large allocations, $1 billion allocations from the like of big -- likes of big institutional guys. they want to make sure people hold onto the stock, and they are long-term buyers. the last thing you would to see from a banker's point of view is someone goes in and sells right away tomorrow. >> you mentioned conservative. that is number three. is jack my conservative business person -- jack ma a conservative business person? >> he has always been a risk taker. keep in mind, he had one very important ally throughout this journey, the chinese government.
sources have told me that the chinese government and alibaba c rules,ate in setting which is why alibaba will never bend the rules. from the beginning, he had the support of the chinese government. that is also outlined in the prospectus. that can also be a risk for investors. >> you can also count on the support, at least at the beginning when trading opens tomorrow, of the richest man in japan, the chief executive of softbank, who happens to have a -- >> 34% stake which will be dilutes after the selling tomorrow. he is very influential in japanese corporate culture, but also in terms of governance within alibaba, very influential. i know they are close in terms of the fiduciary
responsibilities, making those decisions. >> obviously these things do not happen in a vacuum. former chief executive who sold his company, agile sof tware, to oracle -- there are a lot of constituents when you are trying to do a deal, as we mentioned. big chunk of ma, a by yahoo! -- what is it like to do this kind of deal? >> it's pretty competent it. in a lot of ways, this is different. it has been part of chinese culture for thousands of years to have a long-term plan. companies coming to market have some idea what they want to do with capital, but not a clear idea. this will be an interesting thing to watch, because they have a very clear plan, a long-t capital they the
are raising gives them resources to execute that long-term plan. >> do you wish you invested in alibaba? >> of course. i actually sort of indirectly did. >> how are you able to do that? yahoo! owns a large stake in a libaba and may sell some of that tomorrow. >> you pick up shares of yahoo!, of softbank, indirectly invest in both. >> mia saini, i want to ask you about the alibaba firewall effect. you said this was conservative, at the high end of the range, but somebody said it was low? >> a discount. >> i beg your pardon. a discount to what? discount to some projection of growth in the future? >> people have said it is a discount against chinese
competitors. look at the way it is traded against projected earnings for the fiscal year, 29 times. tencent, 34 times. baidu, 37 times. u.s. counterparts are more, a factor of five in some cases./ why that is the case, a lot of it goes to the fact that many companies that alibaba does have platform make more of a profit, and gross margins are a lot healthier. >> you will be following the story and help us with all the details, particularly when trading begins. >> i'm all over it. >> thank you very much, our lady baba, mia saini. bloomberg'sbout special programs tonight on
bloomberg. i am pimm fox. ,ontinuing coverage of alibaba pricing its initial public offering at $68 a share. i want to continue our conversation with paul kedrosky, joining us from san diego. and an analyst with bespoke investment group. bespoke coined the term "the baba effect." >> i don't know if i will take credit for that. paul hickey, my boss, might
have. >> what is the effect? >> there was concern earlier this week, dating back a month now, that the new shares would price of the top end of the range, eating into overall returns. that might have been slightly overblown, but we have seen, we saw monday prior to the fomc and thegot on wednesday piece in the "wall street i -- journal" on tuesday, some internet type names have really underperformed. >> what does that tell you? >> we think a lot of people who will have to buy into alibaba, a can't-miss trade in people's minds, they had to clear the decks. >> firms which is t. rowe price,
as fidelity,s well examples, these are companies, financial brokerages and banks that said they want at least $1 billion worth fo -- of alibaba stock. le we have heard people, peop with $1 billion books wanting $300 million worth. >> someone on the telephone said that? >> not on the telephone, but we have gotten that. i don't know if that is true across the entire book. we're not involved in the process, but there is a lot of demand. >> the book building process, you said the process involved six large financial institutions, taking a variety of coordination. describe what you believe could happen tomorrow at 9:30 a.m.
when the market opens? >> it will be right when the market opens. the new york stock exchange will build the book and open trading manually. a human marketmaker doing that. hours totake a couple build up the buy and sell orders and get a clearing price to get the market open and trading. >> what are they using? the information delivered to them from banks to build this buy and sell book? >> they are pricing tonight. that's been set. tomorrow everyone will say, i have shares at $68, do i want to buy, sell, or hgold? the orders will go in and they will build the book manually on the floor. last time, with twitter, everything went great. we will see if that happens tomorrow. >> paul kedrosky, is there a
certain irony that this book will be manually compiled for an e-commerce giant like alibaba? >> don't even get me started. it ironies are legion when comes to have stocks trade in 2014., the main hope has to be it is not a calamitous opening, which is what we saw with facebook, unlike twitter. what was learned from the facebook offering was you really have to control supply, have a real handle on what demand will look like so you don't get this messy opening like you had with facebook. if anything, they err on the other side with this one. it is so controlled. >> paul kedrosky, do you have a number, what you think it will open at? >> i think it will open at least 10%, $74. >> thank you for joining me.
>> live from pier three in san francisco in new york, welcome to "bloomberg west." i'm emily chang. i had, he is one of the most legendary figures in a silicon valley, but larry ellison is takin -- stepping down from oracle. life inlook into what oracle without larry ellison as a ceo will be like. after months of anticipation, it is finally here. alibaba group praised its a